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Is Your Portfolio Prepared for the Current Markets and the Next 3 to 5 Years of Economic Issues?

What You can Learn from the 2008 Liquidity Crisis:
How Gold Performed In and After the Market Fall

The global markets are in turmoil and seeking liquidity as a result of the current events. Perhaps now is the time you need to think about re-balancing your portfolio to weather these adjustments and set your course for the next 3 to 5 years. Today, more investors seek a balanced portfolio with all four asset classes: stocks, bonds, cash and Gold – the fourth asset class.

Gold is a global storehouse of value and prices can slide at times like these as some investors need to raise cash from one of their most liquid and most trusted assets, Gold, to cover losses and margin calls in other markets. Many advisors are commenting on the parallel of the current markets in Europe to the liquidity crisis that occurred in 2008 with U.S. markets and the Lehman collapse. In the 2008 crisis, Gold provided a source of liquidity as investors sold off some of their Gold holdings to meet their requirements.

With Gold now providing liquidity for those who need it, perhaps this is the opportunity for you to begin or add to your Gold holdings. As you consider the balance in your portfolio, it is important to keep your investment horizon, perhaps the next 3 to 5 years, as your guide.

Do you have questions? Our non-commissioned Account Managers are available Monday through Friday from 8 a.m. to 5 p.m. Central time at 888-518-7464.

Our Most Popular Gold Investments

Since the Gold American Eagle was introduced in 1986, it has been in high demand. Its stately appearance and proud symbolism make the Gold American Eagle one of the world’s most popular forms of personal Gold ownership.

Gold Canadian Maple Leaf bullion coins are a great way to invest. Many consider the Maple Leaf to be one of the world’s most beautiful Gold coins. Each Gold Maple Leaf coin is legal tender, guaranteed by the Canadian government for its weight and .9999 fine purity.

The $3 trillion deficit plan devised by President Obama was unveiled Monday; it featured a heavy emphasis on increased tax revenues from the wealthy. Today, the President stated, “”I will not support any plan that puts all the burden on closing our deficit on ordinary Americans. We are not going to have a one-sided deal that hurts the folks who are most vulnerable.” The President’s comments referred to the idea, often repeated during today’s remarks, that all Americans should pay a “fair share” of taxes, as well as his vow to veto any Medicare cuts unless Congress raises taxes on the wealthy and corporations.

Republican leaders were dismissive of the President’s plan. They were deriding it as a political stunt that is unlikely to ever be made into law. In response to the plan, Mitch McConnell, Republican Senate leader, stated, “Veto threats, a massive tax hike, phantom savings, and punting on entitlement reform is not a recipe for economic or job growth,” while Potomac Research Group’s chief political strategist Greg Valliere said, “This is purely politics, aimed at Obama’s demoralized base. It undoubtedly has been poll-tested, so now Obama has a populist campaign issue. There’s obviously no chance this could pass (on a vote in Congress).”

The International Monetary Fund (IMF) released a report Tuesday which stated that the global outlook for economic growth was for a “weak and bumpy expansion,” which equates to a cutback to 1.5% from 1.8% and Europe being cut to 4% from 4.5%. The IMF’s Chief Economist, Olivier Blanchard, commented on the negative global outlook, “There is a wide perception that
policymakers are one step behind markets…Europe must get its act together.” The IMF also forewarned the U.S. that hasty budget cuts could further weaken growth and added that the U.S. Federal Reserve should be ready to offer to further ease monetary policy.

The Fed released its plan for further easing on Wednesday, saying it will implement a plan known by the public as “Operation
Twist.” The Fed’s plan is to flatten the yield curve of U.S. Treasuries by selling short term bonds to buy long term bonds. This would push down the interest rate the government pays on 10-year T-Bills. Many other long-term loan interest rates (such as mortgage and business loans) are based on the rate of the 10-year Treasury bond. The net effect would be a reduction in borrowing cost for homeowners and businesses. If everything goes according to plan, the result would be job creation. Following the announcement, both precious metals and stock markets fell sharply, with the Dow closing down 391 points on Thursday. Precious
metals continued their downward momentum on Friday with Gold down by as much as $100 by the time of this writing.

On Friday, the U.S. stock market was choppy, but precious metal prices continued to plunge. Hedge funds sold Gold and this is the number one reason why Gold prices were down. The big question: “Are they selling because they are no longer bullish on Gold or are they selling because they need to raise cash quickly and Gold is a highly liquid asset?” Hedge funds not only need to raise
cash to cover margin calls in turbulent times like these but redemption requests increase. Michael Gayed, Chief Investment Strategist for Pension Partners comments, “The tendency for individual hedge funds or anybody is to sell winners before they sell losers. What’s been one of the few winners this year? It’s been Gold.” Not all funds are selling and there are still some
strategists who predict Gold to reach $2,300. After all, even with the pullback, Gold is up over 20% for the year.

2011 brought with it a newly designed Silver American Eagle. This current date of the Silver Eagle will only add to the coin’s legacy as the most popular Silver bullion coin in the world. Another interesting tidbit about the 2011 Silver American Eagle is the minting location. 2011 is the first year Silver Eagles have been minted at the San Francisco Mint since 1998.

The U.S. Mint began minting the Silver American Eagle (SAE) in 1986. The 26 years of mintage have produced over 225 million SAEs. Since 2000, demand for these coins has exploded. These 2011 coins trade at premiums close to common-date Silver American Eagles, which makes their current date a bonus of sorts. The 2011 SAE is a brilliant uncirculated coin that can be bought in bulk at APMEX.com and used in Precious Metals IRAs while potentially adding numismatic value to your investment.

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

The risk to this strategy is that the Fed may actually take a step too large for the economy to handle. The U.S. economy has been compared to a large ship, and monetary policy is the steering wheel. The ship turns very slowly and has a lot of momentum; by the time you know you’ve turned the wheel too far, it can be too late to do anything about it. There are many opinions as to how well the Fed Chairman Ben Bernanke is steering the ship. I would be curious to hear yours.

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What is your outlook regarding the future of oil prices, world peace, the U.S. budget deficit, the European debt crisis and unemployment? Your opinions about worldwide political and economic events should help shape your asset allocation strategy — including the percent of your portfolio you dedicate to Gold and other precious metals.

Take our ”What Type of Investor are You?” quiz to see whether your allocation to precious metals is in proper balance given your outlook about key global issues. The quiz will help you:

Pinpoint your views on topics that are likely to affect the financial markets.

Learn how precious metals have historically reacted during times of inflation, global political disruption, and weakness in the U.S. dollar.

Determine whether you might make adjustments in your asset allocation into precious metals.

Whatever the future holds, a well-balanced portfolio with asset allocation that includes exposure to Gold and other precious metals can help protect your wealth. You might have questions and we would like to help. Call our non-commissioned Account Managers toll-free at 888.518.7464 Monday through Friday from 8 a.m. to 5 p.m. Central time.

The short answer is yes. America has advantages with the U.S. dollar as the world’s reserve currency that other nations, such as China, would love to enjoy. Since the U.S. dollar is the medium of exchange in worldwide transactions, the U.S. pays for transactions in its own currency. Other countries are required to exchange their currency into the U.S. dollar which results in additional transaction fees with each exchange. This means they will pay slightly more for the same commodity than the U.S. would pay. This reserve currency status also allows Americans to borrow at advantageous rates because our dollar is in a higher demand. Last but not least, the U.S. can always print more dollars to pay its global bills.

We hear on occasion of appeals that America must go back to the Gold standard. Although I am not opposed to this idea; I do not see this happening. If we went back to the Gold standard monetary system, the participating nations would lose their ability to print more money to pay their bills. I do see the possibility that the world reserve currency may actually become a basket of different currencies which would include Gold. If you do not understand by now that Gold is a currency and not a commodity, you should. Central banks around the world began exchanging U.S. dollars for Gold back in late 2009; in 2011, they have only picked up the pace. I think the direction is that reserves for currency will be a possible basket of U.S. dollars, Gold, perhaps euros and maybe remnibi. You cannot count the Chinese out; they intend to be a global financial power.

As we watched the price of Gold break $1800 per ounce recently, many people directly attribute this to the loss of faith in government-backed paper money – more accurately, it is a loss of faith in paper money by their own central banks! What do they know that perhaps we should know?

Prior to 1971, there was an unspoken agreement amongst foreign treasuries not to ask for Gold, which could produce a Gold run. However in 1971, with the U.S. facing accelerating inflation and the expense of the Vietnam War, other countries began to lose faith in the U.S. dollar and began asking for payments in Gold. The Nixon administration went off the Gold standard in order to devalue the U.S. dollar. They feared that a run on Gold could deplete their Gold reserves and they were concerned about a deficit trade imbalance with Japan. By lowering the value of the U.S. dollar, they marginally offset the trade imbalance and there was no run on the U.S. gold supply.

Over the last 40 years, Gold prices have climbed upwards 5000%, while the purchasing power of the U.S. dollar has continually declined. Would a return to a Gold standard bring greater value to the U.S. dollar and help resolve the U.S. debt crisis?

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Gold has moved opposite of the S&P 500since February.The chart above gives a graphic example of the negative correlation between Gold and one of the other asset classes, stocks. Since February, economic stress in Europe and the U.S. has pulled the S&P 500 down while Gold moved higher.

After the Democrats and the Republicans came to an agreement and prevented a default on our nation’s debt, conventional wisdom says the market would boost as business and investor confidence increased. However, today’s reality is that the stocks ended low in the face of uncertainty over the debt deal. The terms include a $400 billion increase in the debt limit immediately, a $500 billion increase this fall, immediate spending cuts of $900 billion, and the creation of a Congressional commission to identify another $1.2 trillion in spending cuts. Former Under Secretary of Commerce Robert Shapiro described these terms as “a mindless way to run a government.” J.J. Kinahan, managing director with TD Ameritrade, was quoted as saying, “Debt deal or no debt deal, we have some fundamental problems in the economy that we’re not dealing with.”

Monday’s extremely disappointing manufacturing report and last week’s revision of first-quarter growth estimates caused this change in focus. More bad news for the economy was released Tuesday; even though incomes rose in June, consumer spending fell (along with consumer prices). With most economists’ expectations of a credit rating downgrade from the top-notch AAA rating, stock futures were down and investors flocked to safe havens including Gold, which hit new record highs this week before falling victim to the massive selloff affecting all markets.

The stock markets are viewing a recession as likely as prices have continued to decline; stock prices hit their lowest points in almost two years. The concern has driven a number of investors to Treasuries, which is causing inflation concerns with the Swiss Franc and Japanese Yen. Mike Ryan, Chief Investment Strategist at UBS Wealth Management Americas, said Thursday, “The mood right now is gloomy…The burden of proof is for better data that show the economy is not falling into recession. Tomorrow’s payroll report is crucial. If we see another disappointment, the stock market will have significant downside from here.”

The highly anticipated payrolls report was released this morning; it indicated an increase of 117,000 jobs in July. The unemployment rate fell .1% down to 9.1%. These numbers were better than expected which finally brought some relief to Wall Street after two days of tension. Gold gave up early gains amid the news but one analyst says that South Korea’s recent purchase of Gold signals that it’s still not too late to buy Gold. An executive of one company stated that South Korea’s purchase is “significant, as it represents the first purchase of Gold by the East Asian country in over a decade. It would seem South Korea has joined the ranks of those countries that have lost faith in the U.S. dollar … it is no coincidence that many of these central banks are from emerging-market economies. Many of these countries have experienced the grim reality of enduring a currency crisis first-hand.”

Platinum American Eagle Coins

Released in 1997, the Platinum American Eagle coin is the only investment-grade platinum coin from the U.S. Mint. Since its introduction, the Platinum Eagle has become one of the world’s most widely-traded platinum bullion coins because of the patriotic design and platinum value. The obverse design celebrates freedom and opportunity with a portrait of the Statue of Liberty. The reverse design is unique in that it changes each year; strength and security are portrayed in the theme of the American eagle.